US & World Daily Markets Financial Briefing 23-05-2008

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Wall Street is down after home sales report

NEW YORK - Stocks fell Friday as investors digested a better-than-expected home sales report that still showed continued weakness, and as traders squared their portfolios ahead of the three-day holiday weekend.

The National Association of Realtors said existing home sales fell 1 percent last month. That's better than analysts' forecast of a 1.6 percent decline, but the news was still unwelcome to a market nervous about the continuing housing slump and the impact of the rising price of oil on consumers.

Meanwhile, rising oil prices also weighed on stocks. A barrel of oil is up $2.36 at $133.17 on the New York Mercantile Exchange. Oil prices are set for a third weekly gain after surging to a record $135.09 a barrel on Thursday. Investors are buying on the belief that supply can't keep up with growing global demand from countries like China and India.

In midmorning trading, the Dow Jones industrials fell 88.75, or 0.70 percent, to 12,536.87. Broader stock indicators also declined. The Standard & Poor's 500 index fell 9.49, or 0.68 percent, to 1,384.86, and the Nasdaq composite index fell 13.33, or 0.54 percent, to 2,451.25.

The economic fallout from higher energy prices remained Wall Street's focus this week. Stocks rose moderately Thursday after two sessions of steep declines, with the Dow recording its biggest two-day loss since late February.

Despite the declines of more than 2 percent in the major indexes this week, stocks are off their mid-March lows. The Dow is still up 7.5 percent from its close of 11,740.15 on March 10.

Bond prices edged higher. The yield on the benchmark 10-year Treasury note, which moves opposite its yield, fell to 3.87 percent from 3.92 percent late Thursday.

The dollar was mostly higher against other major currencies, and gold was also higher. In corporate news, Gap Inc. reported late Thursday that first-quarter profit surpassed Wall Street projections. The retailer said it boosted profit by 40 percent by better managing inventory and cutting costs. Gap fell 43 cents, or 2.4 percent, to $17.85.

There was also deal talk going into the holiday weekend. Halliburton Co., the world's second-largest oilfield services company, made a $3.4 billion bid to acquire British rival Expro International Group. Halliburton rose 49 cents to $48.77.

Yahoo Inc. late Thursday said in regulatory filing that it pushed its annual shareholders meeting to an undetermined date in late July. The move was seen giving the Internet portal more time to prepare a defense -- or negotiate a sale to Microsoft Corp. Yahoo fell 8 cents to $27.45, while Microsoft fell 222 cents to $28.26.

American Axle and Manufacturing Holdings Inc. fell 47 cents, or 3.2 percent, to $18.78 after the company said late Thursday that workers approved a new contract including pay cuts and other concessions. The vote ends a strike that lasted nearly three months, hurting General Motors Corp.'s production of large sport utility vehicles and pickup trucks. Although the contract's ratification will benefit GM, auto stocks have been under pressure this week because of soaring fuel prices.

In overseas trade, Tokyo's Nikkei closed rose 0.24 percent. In Europe, London's FTSE dropped 0.28 percent, Frankfurt's DAX fell 0.35 percent and Paris' CAC 40 shed 0.79 percent.

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Forex - Euro regains some ground vs U.S. dollar ahead of U.S. home sales data

LONDON - The euro regained some ground against the U.S. dollar as market players awaited the release of U.S. existing home sales data Friday.

The euro has been creeping back up, as the U.S. currency suffers amid concerns that the upcoming housing market figures will not provide any suggestion that the U.S. economy is out of the woods just yet.

"The downtrends in both mortgage applications for home purchase and pending home sales point to further weakness. This could well provide something of a reality check to markets, with the U.S. dollar and equities turning tail simultaneously," said Steve Pearson at HBOS.

The single currency had fallen back earlier Friday in response to the latest euro zone PMI figures, which showed a sharp fall in services sector activity as well as a further drop in manufacturing activity.

These raised further concerns about the worsening outlook for the euro zone, though the euro soon pared some of its losses as ongoing concerns about inflationary pressures still leave the possibility of a rate cut from the European Central Bank very remote.

"The purchasing managers' indices for industry and services have continued their slide this month, and are clearly in retreat ... For the time being, though, the ECB's hands are tied by high inflation, which can be expected to rise even further," said Matthias Rubisch at Commerzbank.

Elsewhere, the pound extended its gains against the U.S. dollar, with the confirmation of UK GDP growth at 0.4 percent in the first quarter going some way to support the currency. Market players focused on the unexpectedly strong 1.3 percent increase in household spending, which along with firm retail sales data earlier this week suggests that the oft-repeated death of the consumer may have been exaggerated.

In any case, the Bank of England is seen unlikely to cut rates any time soon, providing another pillar of support for the pound.

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Euroshares down as cars, oils weigh; offsetting gains on Wall St.

At 9:24 a.m., the DJ STOXX 50 was down 27.8 points, or 0.89 percent, at 3200.63 and the DJ STOXX 600 was down 2.46 points, or 0.76 percent, at 321.83.

Car stocks continued their recent slide as still high oil prices and caution about the prospects in the sector continued to weigh after Ford Motor Co. warned that it no longer expects to return to profitability by next year.

Ford trimmed its North American production of pickups and SUVs for the rest of this year because of high gas prices and a shaky economy.

The automaker also lowered its forecasts for U.S. sales for 2008. Ford fell 8.2 pct. Here, Renault moved 1.9 percent lower, Volkswagen slipped 1.26 percent and Daimler was down 1.09 percent. And Total was down 0.74 percent, ENI was down 0.63 percent and Royal Dutch Shell was down 0.54 percent with oil well below yesterday's record high.

In company specific news, shares in Syngenta rose in morning deals leading the Swiss Market Index after the Swiss agrochemicals group said it has reached an agreement with U.S. peer Monsanto settling all outstanding litigation relating to the two companies' global corn and soybean businesses.

Shares in Hypo Real Estate Holdings AG. were 3.01 percent higher at the start of trading as a group of investors led by J.C. Flowers formally launched Friday its 1.1 billion euros cash voluntary takeover offer for 24.9 percent of the company.

Shares in Deutsche Postbank AG. were 3.25 percent higher in early trade amid hopes that bidding for the group has begun. The Financial Times reported Allianz and Commerzbank have expressed an interest to buy Postbank for 10 billion euros. "One broker said this could well be the beginning of a bidding process which could well be joined by foreign banks as well.

And Morgan Stanley upgraded the shares to to 'overweight' from 'equal-weight'. It said the stock underperformed the sector into the bear market rebound "but it should be a defensive play going into the next downwards leg".

But British Energy slipped back 0.34 percent as Suez said it has ended talks with the UK nuclear group. In broker changes of note, Merrill Lynch upgraded BASF, up 1.35 percent, to 'buy' from 'neutral'. And Morgan Stanley has upgraded its recommendation on Vivendi, up 1.18 percent, to 'equal-weight' from 'underweight', saying the downside appears limited.

Randstad, up 2.61 percent, were higher in morning trading after Cheuvreux upped the stock to 'selected list' from 'outperform'.

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Asian stocks end lower as energy sector drags down Australia, Hong Kong

The S&P/ASX 200 was down 1.0 percent at 5,768.0 while the All Ordinaries index was off 0.9 percent at 5,866.2 as investors dumped energy stocks.

Woodside Petroleum retreated from a record high hit on Thursday to close down 3.7 percent at A$67.45 and Santos lost 6.6 percent to A$19.25. Index leader BHP Billiton ended down 0.4 percent at A$47.49 and Rio Tinto lost 1.0 percent to A$149.52.

The Shanghai Composite index closed down 0.4 percent at 3,473.09, led by metal stocks. In Hong Kong, the Hang Seng lost 1.3 percent to 24,714.07 led by large-cap CNOOC Ltd. after oil prices eased and by China Mobile Ltd. on speculation Beijing will announce a restructuring in the telecom sector.

CNOOC, the mainland's largest offshore oil and gas producer, tumbled 6.6 percent to HK$14.76 and Asia's biggest mobile phone company China Mobile Ltd. slid 3.8 percent to HK$125.10.

Analysts are expecting Beijing to allow fixed-line phone companies like China Telecom Corp. and China Netcom Group (Hong Kong) to offer mobile phone services and compete head on with China Mobile, currently the nation's largest cellphone service provider.

South Korea's Kospi was little changed at 1,827.94, while the Singapore Straits Times index dropped 1.2 percent to close at 3,122.15.

Resources stocks in Hong Kong declined as metal prices retreated. The telecom sector was in focus following media reports China will announce personnel changes at the four main telecom operators Friday, likely signalling further action on a long-awaited industry restructuring.

The portals Sina.com and Sohu.com both reported that Zhang Chunjiang, general manager of China Netcom, will be named vice president of China Mobile. Wang Jianzhou, China Mobile's chairman and president, will keep his current position.

Meanwhile, Wang Xiaochu, the chairman of China Telecom, will retain his position while Chang Xiaobing, chairman of China Unicom, will be placed in charge of the working committee organizing the new China Unicom.

The reports said the restructuring will involve China Telecom buying China Unicom's CDMA business and China Unicom's GSM business merging with China Netcom. China Mobile will merge with China Tietong Telecom, a railway-based telecom operator.

China Unicom gained 11.9 percent to HK$18.48. Shares in China Telecom, Unicom and Netcom Group were placed in a trading halt prior to the morning session's close. China Telecom, the largest fixed line company in the mainland, climbed 6.98 percent to HK$5.67 and China Netcom surged 12.5 percent to HK$27.05.

China's Lenovo Group lost 6.8 percent to HK$6.01 on worries the world's number four PC maker will fail to sustain profit growth in the months ahead given a slowing global economy and keen competition from rivals.

Lenovo reported Thursday that its net profit tripled in the fiscal year ended March on gains from the sale of its handset business and higher demand for its products. Net profit surged to $484.26 million from $161.14 million, beating most analysts' forecasts. Sales rose 17 percent.

Elsewhere, the Philippines composite closed up 0.4 percent at 2,849.28, Malaysia's KLCI eased 0.2 percent to finish at 1,274.78 and the Jakarta index was down 1.5 percent at 2,465.96. Taiwan's weighted index ended down 1.92 percent at 8,834.73.

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Metals - Gold jumps above $925; oil, dollar support

LONDON - Gold jumped above $925 after closing well below a one month peak on Thursday on bargain hunting, expectations for dollar weakness and as inflation concerns remained ahead of a long weekend.

The U.S. and UK markets will be closed on Monday, leading to some increased purchases.

Rocketing oil prices, which remain close to record highs, coupled with expectations for dollar weakness are supporting the precious metal. Meanwhile, the threat of more economic weakness remains, which boosts gold's safe haven appeal.

"The macroeconomic environment remains broadly supportive of gold prices," said HSBC analyst James Steele. "Factors supporting gold include the credit crunch, heightened financial market instability, and an increase in inflationary pressures associated with rising oil and food prices. These factors, including prolonged dollar weakness, in our view, encourage investor demand for safe-haven assets, notably gold."

While the dollar has picked up against the euro slightly over the past day, analysts say the greenback's rise will be limited, particularly ahead of the release of U.S. home sales data later on Friday.

"A major test arrives today ... in the form of the U.S. existing home sales data for April," said Steve Pearson, analyst at HBOS.

"The downtrends in both mortgage applications for home purchase and pending home sales point to further weakness. This could well provide something of a reality check to markets, with the U.S. dollar and equities turning tail simultaneously," he said. Such weakness could spark another round of gold buying.

At 1:31 p.m., spot gold was trading at $925.80 per ounce against $918.60 in late New York trade on Thursday. Gold hit $935.18 Thursday, its highest value in a month.

In other precious metals, platinum was higher at $2,180 per ounce from $2,171. Meanwhile, sister metal palladium edged down to $447 per ounce from $451. Silver rose to $18.21 per ounce from $17.94.

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